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ReadyLink Healthcare, Inc. v. State Compensation Insurance Fund

United States Court of Appeals, Ninth Circuit

June 12, 2014

READYLINK HEALTHCARE, INC., a Nevada Corporation, on behalf of itself and others similarly situated, Plaintiff-Appellant,
STATE COMPENSATION INSURANCE FUND; DAVE JONES, Insurance Commissioner, in his official capacity, Defendants-Appellees

Argued and Submitted, Pasadena, California: April 10, 2014.

Page 755

U.S. District Court for the Central District of California, D. C. No. 2:11-cv-09934-PSG-PJW-Hon. Philip S. Gutierrez, Presiding District Judge.

Appeal from a judgment of the U.S. District Court for the Central District of California. Judgment affirmed .

Page 756

Seth A. Rafkin (argued) and Jennifer M. Bogue, Cooley LLP, San Diego, California, for Plaintiff-Appellant.

Kamala D. Harris, Attorney General of California, Paul D. Gifford, Senior Assistant Attorney General, Felix E. Leatherwood, Supervising Deputy Attorney General, Brian D. Wesley (argued), Deputy Attorney General, Los Angeles, California, for Defendant-Appellee Dave Jones, California Insurance Commissioner, in his official capacity.

Bruce D. Celebrezze (argued) and Benjamin E. Shiftan, Sedgwick LLP, San Francisco, California; LaDonna Wallace, Jody A. DeBernardi, and Judith D. Sapper, State Compensation Insurance Fund, Santa Ana, California, for Defendant-Appellee State Compensation Fund.

Before : Jerome Farris and Andrew D. Hurwitz, Circuit Judges, and Paul L. Friedman, District Judge.[*] Opinion bye Judge Hurwitz.


Andrew D. Hurwitz, Judge.

This case involves parallel judicial proceedings, one in state court and the other in federal court. Each was initiated by ReadyLink Healthcare, Inc. (ReadyLink), and each contended that a decision by the Commissioner of the California Department of Insurance (Commissioner) was preempted by Internal Revenue Service (IRS) regulations. The federal district court abstained, relying on Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971). While this appeal from the district court judgment was pending, the California Court of Appeal rejected ReadyLink's preemption claim, and the California Supreme Court denied review.[1]

Applying the Supreme Court's guidance in Sprint Communications, Inc. v. Jacobs, ___ U.S. ___, 134 S.Ct. 584, 187 L.Ed.2d 505 (2013), we find that the district court erred by abstaining. However, because issue preclusion now bars ReadyLink's claim, we affirm the judgment dismissing the complaint.

I. Background

ReadyLink provides temporary nurses for medical facilities. From 2000 to 2006, ReadyLink purchased workers' compensation insurance from the State Compensation Insurance Fund (SCIF). See Cal. Ins. Code § § 11770, 11773. Although a creature of California statutes, " SCIF is

Page 757

an 'insurer' on the same basis as any private carrier offering workers' compensation insurance." P. W. Stephens, Inc. v. State Comp. Ins. Fund, 21 Cal.App.4th 1833, 27 Cal.Rptr.2d 107, 108 [59 Cal. Comp. Cases 138] (Ct. App. 1994).

When SCIF audited ReadyLink for the 2005 policy year, it found that ReadyLink had failed to report certain per diem payments to employees as payroll, and billed ReadyLink for an additional premium of $555,327.53. ReadyLink appealed that decision to the California Department of Insurance, see Cal. Ins. Code § 11737(f), and an administrative law judge (ALJ) approved SCIF's premium calculation.

The ALJ first found that the California Workers' Compensation Uniform Statistical Reporting Plan (USRP),[2] which SCIF used to calculate ReadyLink's premium rates, exempts payments for " additional living expenses not normally assumed" from payroll. Because ReadyLink's per diem payments were not tied to the expenses that nurses accrued while working away from their homes, the ALJ concluded that the payments were actually wages. In doing so, the ALJ rejected ReadyLink's argument that the USRP should be interpreted consistently with IRS per diem reporting rules. The Commissioner affirmed and designated the decision as precedential.

ReadyLink then petitioned the Los Angeles Superior Court for a writ of administrative mandamus pursuant to California Code of Civil Procedure ยง 1094.5. It alleged, among other things, that the Commissioner should have followed IRS reporting rules in interpreting the USRP. The Superior Court denied relief. ReadyLink appealed to the California ...

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